How MSRP Is Calculated

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Manufacturer's Suggested Retail Price is a price set by the maker of a vehicle that is a suggestion of how much the car should be sold for based on many different factors that the manufacturer is aware of, but excluding other factors that the manufacturer has little or no control over. Before MSRP came long, you could go to one dealership to buy a specific car and see one price for it, then drive across town to another dealership and see a completely and wildly different price for the exact same car with the same features, even when excluding dealership financing. MSRP was invented as a way to bring fairness and a levelness to the car buying process for the consumer so that, at the very least, they could know exactly what a manufacturer had put into a vehicle and recommended for a car before the dealer got their hands on it to mark up the price. But what goes into a manufacturer's calculations of MSRP?

More Than Just the Car

The MSRP of a car is a calculation of several factors:

  • Invoice: This is the base price of the car from the manufacturer to the dealer. It includes the cost of all of the parts of the base model (the seats, the steering wheel, the paint, the lug nuts, etc...), the labor and taxes paid by the car maker in order to put this car together at its most basic, functioning level, exclusive of any additional options that were added.
  • Factory Options: These are the add-ons to the base model that this particular car has such as an upgraded stereo system, IPod jack, alloy rims, upgraded paint job, leather interior, spoiler, a fancy new alarm system, side airbags, etc. If you are buying a new vehicle, you have the option to customize this part of the MSRP and have a new vehicle sent to the lot with exactly what you request.
  • Destination Charge: This is the cost of shipping the car from the manufacturer to the dealership, usually on the back of one of those big car transport trucks you see going down the road on occasion.
  • Dealer Prep: Dealer prep represents the amount that it will cost a dealership to get a car ready to sell once it has arrived, including giving it a once-over, a washing after its long, dusty trip across the country, fill the tank with gas, add logo stickers to the back of the vehicle, add floor mats, etc.
  • Holdback: This is the amount that the dealer paid to the manufacturer of the car for the car and the ability to sell it. This amount as a profit declines the longer that a car stays on the lot (because in part, the car has to be maintained while on the lot which costs the dealer money). After 90 days, the holdback represents $0 profit to the dealership so it is definitely in their best interest to move a car quickly after it arrives on the lot.